Article published in Savannah Morning News on May 5, 2013
Georgia now has a stick and a string to lure more venture capital to the state.
The carrot, valued at $100 million, has yet to be dug from the garden, however.
Gov. Nathan Deal signed House Bill 318 into law last Monday, creating the Invest Georgia program. The initiative calls for the state to offer matching funds to venture capital firms that invest in Georgia-based early and growth-stage businesses.
The goal is to build an investment infrastructure within the state to encourage start-ups in certain sectors to remain in Georgia.
Invest Georgia, though, has no funding.
Deal’s signature allows for the appointment of a five-person authority that will select a third-party administrator and for that individual to start seeking venture capital investors interested in Georgia companies. But Invest Georgia lacks the initial $10 million in funding called for by H.B. 318.
The situation is encouraging but perplexing to local investors and economic development leaders.
“We’re very excited,” said Trip Tollison, head of the Savannah Economic Development Authority. “But it’s one thing for an architect to draw a blueprint; it’s another to get the money and build.”
The sense of urgency is understandable. More than 20 companies incubated through Georgia research institutions have left the state in the last decade in search of investment or at the behest of private investors.
The amount of venture capital funds invested in Georgia fell in 2012 to $265 million from $383.4 million a year earlier, according to the Technology Association of Georgia.
Those dollars still make the Peach State the Southeast’s venture capital leader, but other nearby states, most notably Florida, North Carolina and Maryland, are ramping up their investment initiatives.
Invest Maryland has $84 million in its coffers to invest in early-stage technology companies specializing in software, communications, cyber security and life sciences. Florida, meanwhile, started the Florida Opportunity Fund in 2007 and has distributed money for more than a dozen investments.
Those other states are “beating” Georgia’s “brains out,” said state Rep. Ron Stephens, R-Savanah.
“We spend millions and millions in the university system to invent a product, but the next stage is take it to commercialism,” Stephens said. “We’re woefully behind on that.”
Invest Georgia proponents may need to get creative to fund the program.
The Georgia Senate allocated $10 million of the state budget toward Invest Georgia in attaching the initiative to H.B. 318 earlier this year. Those funds were cut as the House worked to balance the budget, as required by the state constitution, before the end of the session.
The absence of general funds puts Invest Georgia’s financing in the governor’s hands. His options include selling tax credits to insurance companies, as Maryland did in establishing its fund, or tapping economic development money available through the OneGeorgia Authority, set up with monies from the state’s settlement of Medicaid lawsuits against the tobacco industry in 1998.
Deal could also wait until the 2014 session of the General Assembly and push for Invest Georgia funds in the fiscal year 2015 budget.
“For Georgia to be competitive in the Southeast in terms of cultivating cutting-edge businesses, they had to do something like this,” said John Morisano with local venture capital firm SLAAM Ventures. “The rub is the funding. Let’s just hope they are aggressive about getting it funded.”
Once funded, Invest Georgia would be a valuable resource to organizations like SEDA, which established the SEDA Innovations program last year to leverage private investment potential.
Entrepreneurs and start-ups often reach out to SEDA, and the more venture capital options available in the market, the more attractive Savannah becomes to those entities.
“Currently, something like 92 cents of every dollar in risk capital in Georgia comes from investors in other states,” said Jerald Mitchell, director of SEDA Innovations. “The beauty of Invest Georgia isn’t just that it helps attract capital to the state but forces those investors to partner with the risk capital structure here which in turn helps our infrastructure grow.”
Public dollars, private know-how
Invest Georgia won widespread support because of its structure – a government program administered by those in the private sector with extensive experience.
Invest Georgia will essentially be a fund of funds, meaning venture capital firms will apply to the third-party administrator for matching monies based on the investment opportunities.
Private investors will be required to put 10 percent for investments in early stage companies, defined as those with less than $1 million in revenue and fewer than 20 employees, and 50 percent for investment in growth-stage companies, defined as those with more than $1 million in revenue and no more than 100 employees.
For example, SLAAM Ventures Morisano could propose investing $1 million in a Savannah start-up and draw down $9 million from Invest Georgia.
“Had this thing been funded when we came to town last year, we could have raised $5 million or more from Invest Georgia for what we’ve invested in to this point, at least in theory,” Morisano said.
Invest Georgia funds are tied to targeted industries, such as technology, health care, life sciences, agribusiness, logistics, energy and advanced manufacturing. Invest Georgia money would not be available to early or growth-stage companies in the retail, real estate, venue-based entertainment, financial services, mining or professional service sectors.
H.B. 218 also insists Invest Georgia’s funds be spread beyond the state’s entrepreneurship epicenter, Atlanta. Almost all the in-state venture capital dollars are in the capital city, which has been a hindrance for entrepreneurs in smaller cities such as Savannah in attracting capital, Morisano said.
Yet lawmakers insisted Invest Georgia be a “Georgia fund, not an Atlanta fund,” according to Tollison.
“Atlanta seems to have the capital that we don’t have down here,” local angel investor Ron Medinger said. “If Invest Georgia can change that dynamic, it’s a great idea.”